Energy politics are shaping America’s growing bitcoin mining sector. Here’s how

Bitcoin mining and especially the energy demands of its proof-of-work have long been among the cryptocurrency’s most publicly visible criticisms.

Recent moves in the U.S. mining ecosystem — particularly among those backed by venture capital — indicate that a multi-faceted response is taking shape.

The actual energy use of crypto mining has remained notoriously hard to estimate. The mix of energy sources, even more so. Advocates have repeatedly pointed out that there’s also no clear data on net energy requirements of the traditional monetary system. Even still, that hasn’t stopped efforts like those spearheaded by New York State Senator Anna Kelles, or halted calls by politicians such as U.S. Senator Elizabeth Warren, who on June 9 decried the energy use of cryptocurrency mining during a hearing on central bank digital currencies.

"Many cryptocurrencies are created using proof-of-work mining," Warren said, as reported by The Block. "Such mining has devastating consequences for the climate. Some crypto mining is set up near coal plants, spewing out filth in return for a chance to harvest a few crypto coins. Total energy consumption is staggering, driving up demand for energy."

There is little doubt that bitcoin miners operating in the U.S. and Canada will not be able to operate like miners in China, Iran or Russia traditionally have, especially considering that the latter two have likewise struck out at mining over energy.

Winding back the clock, Tesla’s shift on bitcoin payments last month was a reaction to environmental concerns surrounding Bitcoin mining (although some speculated that CEO Elon Musk’s motivations were some combination of market manipulation or Dogecoin-fueled vendetta).

Musk threw his support behind a new “Bitcoin Mining Council” that aimed to set standards of data transparency for willing North American miners. No real standards have emerged as of yet.

And while North America may be several years ahead of China in shaking a dependence on coal and in environmental regulation, regulators aren’t keen on seeing old coal plants in New York come back to life to sell behind-the-meter power. This is famously the case with Greenidge, which converted a power plant in Dresden into a natural gas operation and. Last month, Greenidge announced that it would become carbon-neutral via the purchase of offsets and invest in renewable energy projects starting June 1.

Speaking to The Block, Kelles, who penned a three-year moratorium proposal on crypto mining in New York State, noted the irony in seeing miners move into such vacant coal power plants, which had become vacant “partly a function of this aggressive push to make our grid more energy efficient.”

But the industry seems to agree, or at least seems willing to address such criticisms in order to work in the U.S. market. And it’s tough to imagine large mining operations surviving scrutiny without adopting new standards. But there are disagreements about these standards.

Juri Bulovic, vice president of strategy at mining firm Foundry, considers regulatory scrutiny to be scapegoating bitcoin:

“People often say Bitcoin uses too much energy. I don’t know what 'too much' means. What’s our reference point? I do think, however, that people should be asking 'what is the source of energy?'”

A subsidiary of Barry Silbert’s Digital Currency Group, Foundry is one of the winners of the recent shift to the U.S., with its pool currently hashing around 3% of Bitcoin blocks. In advertising its USA Pool, Foundry also says quite plainly that it “aims to continue our work in decentralizing Bitcoin’s hashrate by increasing North America’s share in the mining ecosystem.”

Foundry does not operate its own power supply or its own facilities, depending instead on Compute North.

Marathon is another pool operator focusing on North America and seeing massive growth. It is also part of Musk’s Bitcoin Mining Council. Marathon benefited from huge ASIC orders that it made before Bitcoin’s recent bull run. Like Foundry but unlike Greenidge, Marathon depends on energy and facilities sourced from third parties. 

“Unlike some other miners, we don’t believe in owning the hosting facilities,” CEO Fred Thiel told The Block. “Power’s a business that’s going to be heavily regulated going forward, so we’re not trying to be in the power business.”

At the same time, all of these firms are taking steps to promote their own “greenness,” with the Bitcoin Mining Council only one high-profile manifestation of the need to answer to strong public and political pressure. “Carbon-neutral” has become the go-to, with Greenidge's offsetting followed by promises from Marathon that its massive new Texas facility would be 70% neutral. The Bitcoin Mining Council, meanwhile, has its nascent vision of standardized transparency reports for miners.

But these initiatives, as much as they sound like solutions, remain largely theoretical among the largest players, in keeping with the relative novelty of the shift to North America.

Aside from efforts to comply with expectations of energy use, Marathon advertises the money that its new mining operation in the Hardin Generating Station in Montana brings to a local Crow reservation. In a unique effort at know-your-customer compliance, Marathon also briefly filtered bitcoin transactions on blocks that its pool verified based on wallet scoring that truncated blocks heavily.

These are all developing efforts, and some may not pan out as intended. As Kelles noted, there is a limit to how much renewable energy is available in parts of the country. Sparsely populated and chronically windy West Texas turbines produce more clean energy than they can disperse through the current grid, but New York is more limited.

At the same time, Bulovic noted: “Whatever energy you produce, you have to use, otherwise it goes to waste. It’s almost like a perishable food.” It’s for this reason that transport and storage of green energy are huge research areas, but meanwhile, Bulovic maintains that “Bitcoin will change the energy industry and allow for better monetization of energy.”

As others have noted, both Thiel and Bulovic considered nuclear energy to be a more promising solution. But they also considered the shift out of China and into the U.S. to be a clear good for the overall health of the network.

The business environment of the U.S. and Canada are more transparent than China or many of the other major hubs of Bitcoin mining.

Even taking the cynical view of North American miners’ efforts to appeal to regulators — that these are “classic greenwashing,” as Kelles put it — it’s hard to argue that they will not be an improvement over mines in Xinjiang or Tehran. Square, for example, is investing $5 million to build a solar-powered mining facility in partnership with Blockstream.

Kelles pointed out as part of her ambitions for the study, rather than the moratorium element of her legislative package: “Right here in New York State, we could actually for maybe for the first time get a comprehensive estimate of what that mix is” . But for now, the dependence of many miners on third-party providers for data centers and power means the waters will remain muddy.

Large miners looking to operate in North America will face resistance from lawmakers who think the network shouldn’t exist at all. But they will need to develop genuine standards of account to appeal to more moderate voices.

As Thiel put it: “The industry will have to be responsive to regulatory requirements if the financial services industry and investors are going to participate — because they will not if it’s a violation of regulations.”